Free College Isn't All It's Cracked Up to Be

"The U.S. needs more education" has been conventional wisdom for decades now. I can still remember, as a teenager, hearing Bill Clinton and other politicians promise that higher education would be the key to preparing Americans for the new information-based economy.

That orthodoxy has not diminished in force -- if anything, higher education looms larger as a policy tool now than it did then. The idea is especially powerful on the political left. President Obama recently unveiled an initiative to make two years of community college free across the nation. A recent Brookings Institution report on eliminating poverty and enhancing opportunity (written jointly with the American Enterprise Institute) made education one of its main planks.

But senator and presidential candidate Bernie Sanders has gone farther than anyone. He recently introduced a "College for All" act that would make all four-year public universities tuition-free, and which would provide significant debt relief to student borrowers. Sanders's plan has been endorsed by some left-leaning publications such as The Nation. In a recent op-ed for the Washington Post, the senator explained his thinking. He wrote:

In my view, education is essential for personal and national well-being. We live in a highly competitive, global economy, and if our economy is to be strong, we need the best-educated workforce in the world. We won't achieve that if, every year, hundreds of thousands of bright young people cannot afford to go to college while millions more leave school deeply in debt.

It is good to see even self-described "socialists" such as Sanders recognize the reality that the global economy is competitive, and that productivity is based partly on skills. But as a solution to the problem of inequality, education is probably being oversold. Sanders' plan would be expensive, but it's not at all clear that it would result in any economic improvement for the vast majority of its beneficiaries.

First of all, education has not proven to be the poverty cure that many hoped it would be. In fact, the U.S. has already increased educational attainment levels substantially over the past few decades, but poverty rates and inequality have not noticeably fallen. Matt Bruenig, at Demos, points this out, and concludes that education is not useful as a tool for lifting the masses out of poverty. He posts the following chart:

As you can see, the share of poor Americans with high school and college degrees has risen steadily. But poverty rates have increased throughout the nation. Meanwhile inequality, as measured by the Gini coefficient, has risen slightly.

This does not mean that education is ineffective as a tool for reducing poverty and inequality. Other things were happening at the same time that education levels were increasing. Chinese competition and the financial crisis were big negatives for the poor and middle class. But Bruenig's point is that education was not a powerful enough tool to overcome these adverse circumstances. So even if education has some effect, it is a modest one -- certainly not the miracle cure many advocates hope for.

Another problem with Sanders's plan is that free education does not necessarily translate into successful education. Graduation rates for U.S. college students remain fairly low; a vast increase in the number of students entering college would probably send those rates even lower. Every year that a young person spends in education is a year that she is not working. Giving up two years of potential earnings, only to drop out after discovering that you aren't cut out for higher education, is a bad economic outcome for a poor person.

That brings us to another uncomfortable truth -- Sanders's plan will not actually make college free. Opportunity cost is a real cost. Every month that a student spends in "free" college represents a month of foregone earnings. If Sanders really wanted to make college free for students, he would pay them to go -- but this, of course, would be even more insanely expensive.

College education is a good thing, but it's time to reconsider the special place it enjoys at the heart of liberal policy prescriptions. In fact, the theory that made higher education such a compelling idea in the 1990s no longer enjoys the currency it once did. In the '90s, many economists believed that inequality was being driven by "skill-biased technological change"-- the idea that new technologies such as computers required much more education in order to use effectively. But that theory has fallen out of favor in the last 15 years, as evidence has accumulated that it probably only explains one small piece of what is going on.

So before we commit to an expensive new plan for free college education, we should take a hard look at the dividends that such a policy is likely to pay. The results will more than likely be underwhelming.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.